China’s art bonanza dishing up fool’s gold?

Poly 2012 Spring Art Auction in Beijing, June 2, 2012.

TAIPEI, Taiwan — If dead men don’t tell tales, they certainly don’t sell medals awarded to them over 80 years ago.

That was the message delivered by Chinese art collectors when they refused to enter a bid for a medal awarded to late dictator Chiang Kai-sheik on Aug. 24. The medal was put up for sale in Hong Kong despite Taiwan’s Ministry of Defense saying it was a fake. According to the ministry, the real medal was buried with the generalissimo in 1975.

The botched auction is just the latest contentious sale in China’s booming art market, which according to industry research outfit Artprice, overtook both the US and the UK as the world’s largest, with $4.79 billion in sales last year.

But some experts say there’s more to those numbers than meets the eye, pointing to an industry riddled with forgeries, money laundering, bid-rigging and fraud.

“A lot [of the buying] is artificial. In the auction business it’s called show bidding. Their own captive demand is always available to drive the prices and the volume,” said Sergey Skaterschikov, founder of Skate’s Art Market Research.

“The Chinese market is really big on money laundering. The good thing about art from that perspective is you can always say I bought it for $100 and now it’s worth $10 million. It’s very difficult to argue with that because of poor transparency of the art price.”

Skaterschikov, and others, say that art has surpassed real estate, stocks, gambling in Macau and overseas bank accounts as the method of choice for dodgy businessmen and corrupt officials to hide their ill-gotten gains.

In some cases the bids themselves are used to pass bribes, where buyers intentionally overpay for shoddy pieces in order to legally pay the seller.

In one high-profile incident last year, a Chinese businessman had a fake ancient jade burial suit made up. After getting a group of appraisers to verify its authenticity, and value it at a staggering $375 million, the businessman used the suit as collateral to secure a $100 million bank loan.

“The figures are huge because they fetch very high prices. There is a hidden process of laundering through buying and selling of counterfeit and real paintings and antiques in this region,” said Lo Shiu-Hing, and expert on transnational crime at the Hong Kong Institute of Education.

In an old money part of Taipei, and just down the road form the National Palace Museum and the world’s greatest Chinese art collection — which was itself stolen and transferred to the island following the Chinese revolution — Huang Hung-jen contemplates the state of a market once dominated by Taiwanese collectors.

“Most people in China are investors as opposed to collectors. It’s an investment above all else. They want to make on it fast. But the real winners are collectors. They buy and keep pieces for five to 10 years. By the time they put them up for auction the resale is five to 10 times higher,” said Huang, who racked up a decade’s worth of experience in Taiwanese auction houses before being handpicked to run a Chinese firm’s Taipei office.

“Investors have problems with forgeries, but we are OK, because our experts catch that. But cosigners have given us pieces [that were forgeries] so many times. We can’t do anything about it. We just let it go and say ’we can’t accept this item.'”

Perhaps given the success Huang and his company have enjoyed recently, they can afford to be generous.

At its June show in Beijing, Huang found the Taiwanese collector that sold a 1964 landscape by Chinese painter Li Keran for $49.24 million. Li is famous for paintings that celebrate Cultural Revolution protagonist Mao Zedong. An anonymous buyer from the Forbidden City picked up the painting — a record for a Li piece.

Nobody knows for sure how much of China’s art market is bogus. But one thing is for sure, it’s not just a Chinese problem. The Association for Research into Crimes against Art estimates that art crime is the third biggest grossing criminal activity worldwide, behind only drugs and arms trafficking.

The association estimates that the art market brings in as much as $6 billion annually, saying that those funds are used to bolster organized crime syndicates. Still, experts say that like so many other industries, the gold rush is happening faster and stronger in China than anywhere else.

“The art world is very slow to wake up to the new reality. When they wake up to the fact that the economic power has shifted towards Chinese players there will be mayhem,” said Skaterschikov. “But people are very quickly going to learn that there is none of this spiritual art buying and collecting that they're used to from American or European buyers. This is driven by other motives.”